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Sunday, May 11, 2008

India to adopt international accounting guidelines

One of the problems that one comes across in international business is the lack of consistency in the accounting standards that obtains across countries. This inconsistency can affect the profit of firms significantly as the following reveals.

IT IS just as well that the government of India has decided to adopt international accounting guidelines. Otherwise, almost 200 Indian firms listed on European bourses would have been put to hardship owing to differences in Indian and EU (European Union) accounting norms. These firms have raised capital from EU investors.

If the government of India had not agreed to adopt international accounting guidelines, the EU may have initiated tough action against the said firms for non-compliance with internationally-accepted accounting standards. The firms may have been obliged to de-list from EU exchanges or have their books re-audited by European audit firms. The latter action would have increased the compliance cost for the firms significantly. After all, Indian firms are the largest non-EU entities to have raised capital from the trading block.

The government’s action results from EU’s announcement that it would examine the equivalence of accounting standards followed by non-EU countries during 2008. It would spare firms from tough action only if the home countries of the firms adopted a convergence programme. In the circumstances, the government of India wanted to clearly convey to EU that it intends to converge with international financial reporting standards (IFRS) by 2011. These standards, issued by the International Accounting Standards Board (IASB), have been adopted by around 100 countries. Given that India has already adopted a programme of convergence with IFRS, a public confirmation of the approach leading to convergence with IFRS would enable EU to determine the equivalence of Indian accounting standards. IASB came into being in March 2001, replacing the International Accounting Standards Committee (IASC), which came into being in 1973.